A wake up call for a realistic energy policy

 This month, I returned to familiar territory when asked to write an overview of UK energy policy as part of a wider European project. Energy policy can be quite parochial, particularly in Scotland, so it was interesting listening to European colleagues who link the issue to broader strategic issues, such as the Russian gas pipeline.

The impact of rising energy prices is a common concern across Europe. UK customers have had some protection due to tariff caps, but these caps increased by 12% in October 2021 and are set to increase in April 2022. The Bank of England expects the cap to rise from its current level by 20% for electricity and 35% for gas, leading to year-on-year energy inflation rates of 31% and 58%, respectively, in April. Others, including energy specialists Cornwall Insight, have predicted even steeper increases. The £2000 plus annual energy bill looks inevitable.

As the IFS highlight, this would lead to a mildly regressive pattern of overall inflation because lower-income households spend almost three times as much of their budgets on gas and electricity as the highest-income tenth on average (11% versus 4%). To this, you can add the impact of benefit cuts and tax rises, all of which disproportionately hit the lower paid. So much for levelling up!

A failing energy market is also not unique to the UK. New entrants have been collapsing like flies, not least because they were ill-equipped to cope with rising gas prices. Even more prominent players like OVO Energy (the third biggest supplier) are in trouble. They announced 1700 job losses today, which is unlikely to do much for their customer service. Already tarnished by advising customers to keep their heating bills low by “having a cuddle with your pets”, eating “hearty bowls of porridge” and “doing a few star jumps”. Ovo took over SSE’s retail operation a couple of years ago.

Reliance on expensive gas imports is another common position, driven by the ‘dash for gas’ in the 1990s by the privatised energy companies. In Europe, that may be addressed by the Nord Stream 2 project, which will bring vast amounts of extra Russian gas into the European market. However, the implications for Ukraine and Russian power more generally is clearly a concern. Brian Wilson reminds us we are paying the price of action and inaction over the past 20 years, “Those whose mission in life was to get rid of nuclear power knew that gas was the realistic alternative, regardless of cost or where it came from. Those who preached renewables and pretended there was not a problem with intermittency that needed to be addressed with equal vigour made the same unspoken assumption.” 

This should all be a wake-up call for further renewable generation and energy efficiency. However, that won't address the immediate challenges. The energy industry has suggested a £20 billion fund to subsidise bills, repaid over ten years. This, of course, assumes prices will return to previous levels, which may be a gamble the Treasury is unwilling to take. Removing VAT and transferring 'green levies' from bills to the taxpayer would save £250 a year for the average householder. Helpful, but just a dent in the projected price rises. A windfall tax on energy producers profits could fund an expansion of the warm homes discount and the winter fuel allowance and reversing benefit cuts and tax increases.

Fossil fuel producers exploit the crisis to warn against a rapid move away from fossil fuels. For environmentalists, the situation highlights the need to accelerate the move away from expensive and volatile fossil fuels. This highlights the failure of COP26 to tackle the fossil fuel status quo. More green investment is required to ensure the future falling fossil fuel production is compensated for by improvements in energy efficiency and rapid growth in clean power generation. Despite some limited actions by the financial markets to discourage fossil fuel investment, producers do not believe demand will disappear. 

The Scottish Government continues to bury its head in the sand over nuclear power. It argues, “Significant growth in renewables, storage, hydrogen and in carbon capture are, in our view, the best way in which to secure Scotland’s future energy needs and to meet our net zero objectives.”. This might be a strategy, except that three out of four elements are some way off at best. Little is happening on storage, which is, in any case, expensive when the alternative is to import English gas and nuclear power when the wind isn't blowing. Hydrogen is not really an option for electricity, it's a better bet for heating and transport, but even that is small scale so far. Carbon capture is a sensible option for industrial processes, but again we have barely reached demonstrator projects.

Meanwhile, Hunterston is closing, leaving us with just one time-limited nuclear plant. Nuclear does have cost issues, but we subsidised other forms of renewables. I have given up explaining on Twitter (well, not quite!) the misleading energy statistics that are so often bandied about. Not least the First Minister claiming almost all electricity used in Scotland comes from renewables. In fact, in 2020, 56% of the electricity consumed in Scotland came from renewable sources, 30% from nuclear (which is also renewable) and 13% from fossil fuels. 

There is no shortage of energy issues to be tackled in Europe and the UK. The short-term solutions are all expensive and are the inevitable consequences of a failure to take a sensible long-term approach to energy policy. They are coupled with too much reliance on market solutions. We need a planned and balanced energy policy. 

The case for hydrogen

When it comes to renewable energy, there is a large degree of consensus on the technologies that should feature in our energy strategies. The differences are most apparent around nuclear power, but also carbon capture and storage (CCS) and hydrogen - both of which are important elements in the Scottish Government’s energy strategy.

 

I recently completed an ESG project for a pension fund, which raised specific questions around investments in hydrogen.

 

The history of renewable technology development in Scotland and the UK is riddled with missed opportunities. We have often had a technology lead, before squandering it to others, who then gain the commercial and jobs advantage. CCS, wind power and batteries are just some examples. Many believe that we could make the same mistake with hydrogen.

 

Hydrogen can be produced from a variety of domestic resources, such as natural gas, nuclear power, biomass, and renewable power like solar and wind. The most common methods of producing hydrogen are natural gas reforming (a thermal process), and electrolysis. It is the former, often called ‘Blue’ hydrogen, which is opposed by some environmental groups because it is not totally carbon-free and typically uses CCS technology. The latter, ‘Green’ hydrogen, is made from renewable sources, although it is more expensive to produce.

The EU has a strategy that plans to produce 10 million tons of H2 by 2030, and Germany is adopting a hydrogen strategy that aims to make them a world leader. The UK enjoys a big advantage with this technology given our wind resources, and the intermittent nature of these renewables can be turned into hydrogen, doing away with expensive constraint payments. ScottishPower is building a plant to do this close to their Whitelee wind farm near Glasgow, which could supply hydrogen to Glasgow buses and trains. The first trains are being trialled and manufactured in the UK as part of the Breeze hydrogen plan.

Using CCS, we can turn the emissions from our heavy industries into hydrogen as they transition into cleaner technologies. The Wood Group is preparing a roadmap for how Scotland’s gas network system will need to be adapted if the country is to make the most of the potential of technologies such as hydrogen fuel and carbon capture and storage. Hubs could include the North-East and Grangemouth, making a real contribution to a Just Transition.

 

We also have several smaller companies operating in this field, which need help to grow. Some of the bigger players, like BP, are also seeking early positions in hydrogen and CCS, although there is some way to go before they can demonstrate that this is more than a publicity stunt. A study for RenewableUK, says the renewables sector is confident that it can repeat the success of the offshore wind industry by driving down the cost of green hydrogen over the next decade. However, this will only be a ‘success’ if this time we retain supply chain jobs in the UK.

 

Experience shows that growth won’t happen without government intervention, which brings together the supply and demand-side players and provides investment. The Westminster All Party Parliamentary Group on Hydrogen has called on the UK Government to urgently set out a UK hydrogen strategy or risk, yet again, falling behind. The Committee for Climate Change has estimated that a developed hydrogen system could eventually contribute a similar amount of energy to the UK economy as the electricity industry does today. National Grid says that cutting the UK’s emissions to net-zero will ‘require’ hydrogen, as it could be used to decarbonise parts of the economy that other options cannot reach.

 

Scottish based Logan Energy has secured UK Government funding to supply hydrogen refuelling stations in Teesside, and hopes to extend these across the UK, with worldwide export potential. They have built the first public hydrogen refuelling station in the central belt and are planning more. Green hydrogen production company Ryse has acquired Northern Ireland-based manufacturer Wrightbus and envisages around 3,000 hydrogen buses with a production facility outside Glasgow. First Aberdeen is to run 15 hydrogen-powered double-deckers supplied by Wrightbus as part of an £8.3 million project been funded by Aberdeen City Council, the Scottish Government, and the EU. We also have the prospect of the first hydrogen-powered ferries in the world operating in Orkney.

 

Hydrogen has the potential to be an important game-changer in delivering net-zero emissions. Powering transport and replacing gas as a source of heating, two areas where we need to make faster progress. We mustn’t let the excellent work being done in Scotland and the UK go to waste as we have done in the past.

Focusing on energy and the climate emergency

I see in The Herald that ScottishPower chief executive Keith Anderson said Labour promises to take back control of Britain’s energy network meant “losing focus” on the issue of tackling the climate emergency. I appreciate that the policy may impact on ScottishPower’s profits, which won't go down well with the company's Spanish owners. Still, Labour is very much focused on the climate emergency and reforming the failed energy market system is essential to that task. 

By common consensus across the environment lobby, Labour's Green Industrial Revolution is a shift change in political action on climate change. The key to this is the £250 billion Green Transformation Fund dedicated to renewable and low carbon energy, transport, biodiversity and environmental restoration. This investment will enable the Scottish Parliament to adopt more radical climate change targets and action plans, including retrofitting almost all of Scotland’s 2.6m homes to the highest energy standards.

You might have thought that Keith Anderson would have welcomed the new wind farm capacity (7000 offshore and 2000 onshore wind turbines), 60% of which will be in Scotland creating around 20,000 new jobs. It might be a little easier persuading the often cash strapped Iberdrola board in Spain to invest if there is government investment as well. Particularly when the government can borrow so much more cheaply than energy companies.

Of course, Labour will link this to a new industrial strategy, which, unlike almost all ScottishPower wind farms, will link investment to jobs in the UK. The shift to renewable energy is welcome, but there has been no Just Transition for workers in the industry and the supply chain. That is a failure of the UK and Scottish governments, and all power companies, including ScottishPower.

ScottishPower’s primary concern is Labour’s plan to bring UK energy systems into democratic public ownership, including those run by ScottishPower. This means the current profits will be reinvested or used to reduce bills, rather than being sent to Iberdrola in Spain. 

Citizens Advice estimated that over eight years network companies would make £7.5 billion in unjustified profits. The Committee on Climate Change also identified higher network costs as a key reason UK business have faced higher electricity bills than European competitors.

Public ownership will secure democratic control over nationally strategic infrastructure and provide collective stewardship for vital natural resources. This will help deliver Labour’s ambitious emissions targets. Private network companies and the toothless regulator Ofgem have failed to upgrade the grid at the speed and scale needed. In contrast, publicly owned networks will accelerate and coordinate investment to connect renewable and low carbon energy as they have done so successfully in other European countries, most notably Denmark. Only two countries in Europe have fully privatised electricity – UK and Portugal (Portugal because of EU austerity imposition). That’s because they understand the importance of democratic control of grid access.

Public ownership will also end the expensive regulatory system which involves armies of economic regulators in Ofgem and the power companies. As someone who represented energy workers for years, I have seen the waste that this system creates, all ultimately paid for by consumers.

Interestingly, Keith Anderson didn’t appear to be as exercised over the nationalisation of ScottishPower’s supply arm. The current supply companies are not profitable and have increasingly sought to reduce costs by offshoring jobs and cutting corners with customer service - as evidenced by consumer surveys. SSE has already sold off its supply business and Npower is effectively closing its business. I have long argued that the Scottish government should offer to take over ScottishPower’s supply arm rather than set up its own company. I suspect that might get the favourable attention of decision-makers in Bilbao.   

The so-called energy market has led to higher costs, consumer confusion over tariffs, and discrimination against low income pre-paid meter customers. Labour will create a green army of workers focused on energy efficiency, not selling energy in a flawed and false market. Just compare the confusion of the smart meter rollout with the way North Sea gas conversion was achieved in the 1970s. 

I’ll end by quoting Brian Wilson, the best energy minister I have ever worked with. He recently said: 

“In meeting the climate emergency, it is the state that must step in. It is government which needs the power to determine a response, rather than be in the supplicant position of asking a whole range of players if they would mind adjusting their priorities, please.”

Labour’s plans may not be well received in some corporate boardrooms, but they are very much focused on tackling the climate emergency for the many, not the few.

Tackling climate change with warm homes for all

If we don’t take action now, a zero-carbon energy system will remain a pipe dream for decades to come.

I was listening in on a focus group discussion the other day, run by a friend in the industry. When they got around to climate change the young people in the group gave this as their primary concern and were very clear that as a country, we were not doing enough.

This response didn't surprise me, but what did make me sit up was the response of the older people in the group. They said we had a duty to bequeath a clean planet to the next generation. My friend noticed this trend across several sessions and showed me data that older people had significantly changed their position on climate change action. 

While concern about climate change had risen across all age ranges, the increase was lower amongst middle-aged men. They cited concerns about the impact on jobs and some of the other lifestyle changes they would need to make.

That is why today's policy announcement on Labour's 'Warm Homes for All' is so important. It takes practical action on climate change, cutting carbon emissions by 10% by the year 2030. It also reduces energy bills, particularly for low-income households, by an average of £417 a year. In Scotland, it will create at least 18,500 direct and 16,600 indirect jobs – directly addressing the concerns of the focus group.

The buildings sector makes up nearly a quarter of Scotland’s emissions, and residential buildings made up the bulk of this at 73%. Fuel Poverty affects 613,000 homes in Scotland, and thousands die every winter due to the effects of living in a cold, damp home.

The Scottish Government has switched resources for fuel poverty off and then on again with a range of programmes. They will no doubt say that this is due to Tory austerity. What is now clear is that the election of a UK Labour Government will create the opportunity to put a transformative scale of investment into seriously tackling this issue.

I have campaigned on fuel poverty for many years, sat on working parties, written reports, and supported many worthwhile initiatives. I have heard UNISON members in social work, and health care describe their frustration at helping people, only to send them home to buildings that exacerbate their conditions. This new plan is on a scale that could eradicate fuel poverty in Scotland.

It is also only one part of a broader plan that Labour calls a 'Green Industrial Revolution'. I am not a great fan of political soundbites, but I have been impressed by the detailed work being put in by the Labour team working on this issue. The recently published 'Thirty by 2030' report shows how we can put the UK onto the path of zero-carbon energy and boost the economy at the same time. They describe a plan that could boost the UK economy by £800bn, creating 850,000 new jobs, increasing household incomes and avoiding 6,000 deaths per year through improved air quality. Not to mention the wider health benefits.

Tackling climate change isn’t easy, but all too often, the opportunities are ignored. The UK could be the world's climate leader while improving the lives of the many. What’s been missing is the political will. Today’s announcements show that the political will is now there – we just have to vote for it!   

Carbon Capture and Storage

There is broad cross party support for Carbon Capture and Storage (CCS) as an important component of our climate change strategy. The problem is turning policy support into action, in our so called energy market. 

I was in London today, participating in an interesting discussion on these issues. I have spent some time, with others, over the years trying to persuade a string of energy ministers and energy companies to adopt CCS, with little success.

CCS is the process of capturing and storing carbon dioxide (CO2), typically caused by burning fossil fuels in power generation and heavy industries, before it is released into the atmosphere. It can be used post-combustion by capturing the gases, or pre-combustion, which involves converting the fuel into a mixture of hydrogen and CO2. It generally captures around 90% of emissions.

Once the CO2 has been captured, it is compressed into a liquid and then pumped underground to be stored into depleted oil and gas reservoirs or coalbeds. Something we have plenty of in Scotland and the North Sea.

The CO2 can be used to produce commercially marketable products, known as carbon capture storage and utilisation (CCSU). Some are reasonably well established like enhanced oil recovery (EOR). Others are still being researched.

CCS is the only technology that can help reduce emissions from heavy industries - essential for tackling climate change. When combined with bioenergy technologies for power generation (known as BECCS – bioenergy with carbon capture and storage), CCS has the potential to generate ‘negative emissions’, removing CO2 from the atmosphere. The potential downside is that these technologies can be expensive, at least until scaled up. 

Some environmental groups are concerned that these technologies will be used as an excuse for climate change inaction, or to allow companies to continue to burn fossil fuels. However, the IPCC report published this week is clear that we may not be able to limit warming to 1.5C without removing carbon dioxide from the atmosphere, and that means CCS. We certainly cannot afford to close it off as an option.

There are more than twenty large scale CCS plants globally. In the UK, a £1 billion competition to develop CCS was dropped in 2015 after a long delay, losing the UK's early research advantage. The Clean Growth Strategy of October 2017, renews a commitment to the technology, with promised investments of up to £100 million. As the Permanent Secretary at the energy department put it giving evidence to MPs earlier this year:

"We think it is very likely to play an important part in the overall effort to decarbonising the economy at the lowest cost. Lots of international studies, as well as our own studies and scientific work here, show that CCUS is likely to be a key part of the overall solution."

However, he went on to say:

"This is much more about innovation. We are not, at this stage, talking about actual deployment of a live, fully functioning, fully scaled CCS project."

In other words, little actual action to create the scale we need to meet climate change targets. There is a small stick involved in energy generation - by 2025 the government will phase out coal burnt in power plants not fitted with CCS.

The Scottish government is supportive of CCS in its energy strategy, but it isn't in a position to fund a full scale project. It is to fund a feasibility study - the Acorn Project aims to create a CCS project at St Fergus in Aberdeenshire. It is also supportive of developing Hydrogen, primarily as a replacement for gas used in heat, plus some transport options. Hydrogen gas at scale will, at least initially, require natural gas (methane) as the source feedstock and as such in order to be low carbon, CCS will be a necessary system requirement. 

It seems clear to me that CCS remains an essential component of any climate change strategy. Scotland is well placed to take a lead, but this has to be on a much larger scale than is currently envisaged. A collective international effort is also needed to speed up research, development and deployment of CCS.

The U.K. Government has a key role to play, but it appears only to be interested in tinkering around the edges. The failed energy market will simply not deliver on the scale required. So, it is time for a planned energy strategy, with public ownership at its core, that can take the necessary action.

Reshaping electricity

Is the electricity sector facing major disruption due to technological innovation, including the falling costs of renewables and energy storage, along with tougher environmental policies and regulatory reform?

Antony Froggett argues in a Chatham House report that as technology and installation becomes cheaper, non-hydro renewables accounted for 61% of all the new installed power capacity across the world in 2017. While the construction of wind and solar was initially stimulated by decarbonisation policy, now it is driven by economics. As renewables continue to be deployed, they become ever cheaper to build and install. Solar is already at least as cheap as coal in Germany, Australia, the US, Spain and Italy. By 2021, it is also expected to be cheaper than coal in China.

However, integrating this new power may become costly. Centralised coal or gas power stations, can more easily be switched on and off to ensure supply meets demand. This is more challenging when renewables are involved, as the sun doesn’t always shine, and the wind doesn’t always blow.

Electricity storage systems could be a key part of the solution and the development of electric vehicles, to address climate change and localised pollution, should drive down the price of batteries. Similar batteries can be used for home storage linked to solar panels.

Digitalisation is likely to be another disruptive change. Smart meters allow energy firms to better monitor and understand their customers, which enables even more flexibility. Algorithms like those already used by Google and Amazon could result in energy supplies tailored to individual households and times of day. Blockchain technology could also enable a peer to peer energy market, allowing neighbours to sell excess power to one another.

Before we get too carried away there are a few challenges. A Westminster parliamentary group recently reported that people who have smart meters installed are expected to save an average of £11 annually on their energy bills, much less than originally hoped. As many of us warned, the piecemeal rollout has been hit by repeated delays and cost increases, with suppliers now almost certain to miss the 2020 deadline. I have a none too smart meter that doesn't work because I switched supplier - and I am not alone. 

The relentless rise of renewables is also not guaranteed. The International Energy Agency (IEA) has reported that fossil fuels increased their share of energy supply investment for the first time since 2014, to $790bn, and will play a significant role for years on current trends. Investment in coal power dropped sharply, but was offset by an increase in oil and gas spending. Fossil fuels’ share of energy investment needs to drop to 40% by 2030 to meet climate targets, but instead rose fractionally to 59% in 2017.

As the New Economics Foundation has highlighted, the number of new solar installations per month in the UK has plunged from an average of over 9,000 between 2010 and 2016, to under 1,000 at the end of 2017. The decline correlates with the Government’s slow suffocation of the Feed-in-Tariff over the last seven years. When these changes were being prepared, the UK government were made well aware of the consequences, yet stubbornly decided to proceed.

Squabbling in the renewable industry won't help to drive a coherent government strategy either. Iberdrola, who own ScottishPower, has voiced its frustration at the UK Government blocking onshore windfarms from competing for renewables subsidies and have attacked technologies like tidal lagoons as, 'Moonshot green technologies'. The company behind the proposed Swansea scheme responded by saying; “Having once bemoaned the incumbency of fossil fuels, it’s disappointing that some in the renewables sector have adopted this bad habit” - ouch!

Offshore wind clearly has significant potential and is a proven technology. Plans to lease the seabed to encourage a new generation of offshore wind farms in Scotland's waters have been published by Crown Estate Scotland. This has the advantage of putting the leasing income into the public purse, rather than big landowners.

The IEA also reported that governments are increasing investment in energy markets, either directly through state-owned firms or indirectly via investments policies and regulation. Firms like ScottishPower are often short of capital investment, which makes them reluctant to back technologies that are not proven to be economically viable. 

This is where Scottish and National Investment banks have a role to play as well as direct public finance. The public policy question is why should we use public money to 'nudge' big power companies, when a public sector operator could do the same job, within a planned energy strategy?

The case for a Scottish energy company needs greater ambition

The creation of a Scottish public sector energy company is very welcome initiative, but the suggested model lacks ambition and is unlikely to tackle the failed energy market.

On 10 October last year the First Minister announced the Scottish Government's intention to set up an Energy Co. by the end of this Parliament in 2021. They commissioned consultants Ernst and Young LLP to prepare a Strategic Outline Case, which has recently been published.

The strategic case for Energy Co. is based on the significant challenges that exist in the Scottish energy market, including high electricity prices, a lack of consumer switching and significant levels of fuel poverty. The strategic case demonstrates that the creation of the Energy Co. has the potential to successfully address some of these problems.

Their analysis indicates that the pre-tax profit margins made in the retail energy market are limited. This may present challenges to the Energy Co. in a highly complex and competitive market. However, if the Energy Co. is able to provide competitive pricing, together with positive and trusted branding as a public provider, it would be well positioned to develop a sufficient customer base. Particularly with disengaged customers that would otherwise have remained on an uncompetitive tariff.

Energy Co. could also encourage energy efficiency more successfully than existing suppliers. Promoting energy efficiency as a way of reducing energy consumption, as opposed to reducing energy costs, is another means of tackling fuel poverty. Energy Co. also has the potential to support economic growth by supporting local energy generation and efficiency, using the lower cost of capital available to government and local authorities.

The paper suggests a number of delivery models ranging from using an existing supplier, a Government company or a hybrid option involving municipal energy companies.  The operating model could be a simple 'White Label' branding of an existing supplier, to a full capability licensed company. The former would have low start up costs and risk, while the latter is more costly in year one, but has greater flexibility and operating scope.

In fairness to the consultants it may have been the brief, but the report is very modest in scope. There are also a number of uncertainties, not least the impact of Brexit and the effect that will have on the current market arrangements. Energy regulation is reserved to Westminster and while the Tories are taking baby steps in reforming the market, Labour is developing much more radical options.

Setting up another retail option in a crowded market is a very limited model. As with municipal energy companies, they need to be in generation and energy efficiency as well. I would also argue that distribution networks could be more local on European models, but that option isn't currently available. The 'Topco' model in the paper has some merits in developing common billing and other systems, but we should be wary of over centralisation, which would negate the innovation and localism of municipal energy.

Having energy efficiency as a National Infrastructure Priority hasn't added much so far, although the Scottish Government has just published a new Route Map to an Energy Efficient Scotland. In addition, one of the brand selling points of Energy Co. ought to be its low carbon offer. Sadly the paper is pretty light on this. The same can be said of how it deals with heat, just as important going forward as electricity.

Developing a new state Energy Co. within the constraints of the current energy market and EU restrictions will always be challenging. We need a much more radical approach to energy reform including public ownership of the transmission and distribution system, public investment in new forms of generation linked to a new industrial strategy, as well as public energy supply companies. 

The risk in this Strategic Outline Case is that we end up with a modest dabble in the market that fails to address the real problems facing Scotland's energy sector.

Big decisions on energy policy, but we must be bolder

There is no shortage of activity on energy policy and we haven’t even heard the outcome of the Scottish Government’s energy strategy consultation.

Let’s start with fracking. The Scottish Government has announced that the existing moratorium would continue ‘indefinitely’, which is an effective ban given their planning powers. This follows a similar ban on underground coal gasification. It will be the subject of a vote in the Scottish Parliament, but that should be a formality, as only the Tories support fracking. 

Claudia Beamish MSP still has her members bill which would put in place a stronger legislative ban. The problem with using planning powers is that the moratorium could be overturned very easily, unlike legislation. I suspect the government has decided to go down the moratorium route to avoid compensation claims from INEOS, who now have drilling licences that they can’t use. However, as the minister said, fracking, “cannot and will not take place in Scotland” - and that is the practical effect.

The overwhelming majority of people in Scotland will welcome this decision. A staggering 99% of the 60,000 respondents to the consultation supported a ban. Apart from INEOS, we had a grand rant from Jim Sillars, who claimed that people didn’t know about the consultation. Well, 60,000 respondents would indicate that claim is mince, not to mention the noise campaign groups having been making on the issue. Jim also expects trade unions to put pressure on the government to rethink the ban at the STUC. I wouldn’t hold your breath on that Jim, most unions are opposed to fracking. 

And you won’t win us over with nonsense claims about how fracking will end fuel poverty. Scotland’s geology means so little fracked gas could be extracted that its use would be for industrial, not domestic heating. Even if it could be extracted in any quantity, the cost would be prohibitive. That is why the investment is drying up for drilling in England and the companies are going to the UK Government with their begging bowl.

The next big announcement by the FM was the establishment of a state owned national energy company. Details on this are a bit scarce, but the announcement points, at least initially, to a retail operation. This is not exactly an original idea, with operations like Robin Hood Energy in Nottingham, Our Power Energy run by housing associations and the People’s Energy Company based in Musselburgh. 

A national energy company is something UNISON supported in its response to the energy strategy consultation. However, we envisaged a more radical option that involves generation and transmission as well as retail. We also support a big role for municipal energy - generating electricity, managing distribution grids, running energy efficiency schemes as well as retail sales. This is very common across Europe and seriously challenges the ownership model in Scotland, something the Scottish Government has been unwilling to do. The big energy companies’ reaction to the announcement last week, indicates that some modest retail competition doesn’t worry them very much. 

The UK Government’s stop-start efforts to introduce a price cap on energy bills, has once more run into trouble. The minister claimed the cap would be in place this winter, a suggestion that was promptly contradicted by Ofgem. The legislation could take a year and then many months more for Ofgem to implement it. Shambles doesn’t even begin to describe this. 

All the usual suspects have been dragged out to tell us how wonderful the market is - all we need to do is get into switching supplier. Meanwhile, in the real-world consumers are increasingly supporting real public ownership options as set out the Labour manifesto. The TUC joined that call at its recent Congress, unanimously backing a motion that supports returning the energy sector to public ownership and democratic control. The motion also called for a mass programme of energy conservation and efficiency, a just transition strategy and investigating the long-term risks to pension funds from investment in fossil fuels.

The last few weeks have seen some important energy policy decisions that could help reshape our energy strategy. However, that will only happen if we are bolder and resist tinkering around the edges.

Action on energy prices is another damp squib

As widely predicted, UK government action on energy bills has turned out to be another damp squib. Ministers passed the buck yet again to Ofgem who have published plans for a ‘fairer and more competitive’ market. As if we haven’t heard that before! 

As the Editor of Utility Week put it: “If the government is convinced that an absolute energy price cap for 17 million UK households is both expedient and desirable, it should take responsibility for delivering it – and sooner rather than later. The industry is not going to tie a noose around its own neck.”

Despite the abundance of energy supply in the UK, we still pay more than the European average. This Ofgem infographic shows how energy bills are broken down.

We are told the solution is more switching in an allegedly competitive market. However, there has been a warning that more small energy firms could go bust this winter because of increasing price volatility. David Bird of Co-operative Energy said that the regulator needed to set financial stress tests for new market entrants, to reduce the risk of firms folding and customers being left in the lurch.

On a more positive note it looks as if there may be some action on charges for pre-payment meters. 

Santander has recently highlighted how much of our declining pay packets go on largely unavoidable household bills. It looked at bills for gas, electricity, water, etc – and found they have risen far ahead of average wage rises. Since 2006, average pay packets in Britain have gone up by 19%, while the average gas bill has risen by 73% and electricity by 72%.

These are very large real rises, and all the grimmer for families and pensioners on very tight budgets – not to mention public sector workers suffering years of pay restraint. These are must pay bills that leave families with harsh choices about what to cut elsewhere.

This bitter pill is made all the less easy to swallow when the boss of one of Scotland’s biggest energy companies has been given a 72% pay rise, soon after arguing against consumers having their bills capped to save them £100 a year. The company also increased the price of its standard variable tariff by 6.9%.

Alistair Phillips-Davies, the chief executive of SSE will be paid £2.92m in 2017 after receiving the maximum possible bonuses for leading a “robust performance” by the supplier last year. The pay rise is even bigger than the 40% rise awarded to the chief executive of the Scottish Gas owner, Centrica.

Former energy minister Brian Wilson is not as convinced as the First Minister that ScottishPower is “an exemplar to our world-leading energy sector” as she opened their new HQ in Glasgow. He argues: “Such testimonials should be tested rather than asserted. Neither ScottishPower nor SSE have built a single power station since privatisation. Scotland has been turned from exporter of electricity to importer. These companies have been the biggest beneficiaries of onshore wind subsidies – without building a single turbine in Scotland. I’m not sure that is such an “exemplar” record, even leaving aside what customers think of them.”

Then we can add energy networks into the mix. They have been accused of exploiting consumers to enjoy a £7.5bn windfall of unjustified “sky high” profits.  Citizen’s Advice reckon the companies that transmit electricity and gas around the UK, including National Grid, were reaping average profit margins of 19% from their monopolies. That compares with the 4% margin that big six suppliers make selling power and gas to householders. They have called for a one-off £285 rebate to every household. Don’t hold your breath on this one, but the companies can expect a tougher price controls next time around.

In a useful analysis of the issues the HofC library argues that the key issue for Parliament will be how to make consumer markets such as energy work effectively. Can consumers be encouraged to find the best deal or does Government need to be more active? 

The simple truth is that markets have failed, not least because consumers have better things to do than spend hours battling the complexity of energy pricing. Government intervention is long overdue.

Election 2017 - Labour's ownership plans are the radical shift in energy policy

Not for the first time, energy policy has received very little attention in this election campaign. In Scotland, key elements are reserved so you might expect a bit more attention to be paid to it, rather than debate devolved issues that MPs have no real say over.

The Tories are not proposing any major changes to their current energy policy, other than over energy prices. The radical change is in Labour's manifesto, which attacks privatisation and fuel poverty, based on three key principles:

• To ensure security of energy supply and ‘keep the lights on’.
• To ensure energy costs are affordable for consumers and businesses.
• To ensure we meet our climate change targets and transition to a low-carbon economy. 

None of these are particularly controversial; the radical meat comes later in the manifesto.

Labour would introduce an immediate emergency price cap to ensure that the average dual-fuel household energy bill remains below £1,000 per year. The SNP manifesto also has a price cap commitment. This was 1970's socialism according to the Daily Mail, until the Tories started to use similar language. In practice the Tory manifesto commitment has been diluted to a targeted cap. So much so that the industry now welcomes it.

The big Labour idea is to take energy back into public ownership to deliver renewable energy, affordability for consumers, and democratic control. This will be done in stages, starting with the energy supply networks license conditions. Then by creating locally accountable energy companies and finally purchasing regional and national grids. As Stephen Hall, from Leeds University notes, this is not quite as revolutionary as it appears. This is happening in the US and Germany, often badged as municipalisation. It is a long way short of command and control nationalisation.

To help tackle other aspects of fuel poverty, Labour will insulate four million homes to help those who suffer in cold homes each winter. This will cut emissions, improve health, save on bills and reduce winter deaths. There should be Barnett consequentials for Scotland from this. Homeowners will be offered interest- free loans to improve their property and Landlord regulations will be changed in England. Labour is committed to similar measures in Scotland. As the Energy Saving Trust says:

"There’s no sugar coating it. From a home energy point of view the Labour manifesto is much more encouraging than the Conservative one."

Labour will ban fracking because it would lock us into an energy infrastructure based on fossil fuels, long after the point in 2030 when the Committee on Climate Change says gas in the UK must sharply decline. Putting to one side the safety and environmental issues, we simply don’t need another dirty fossil fuel. The Tories are proposing incentives in England to promote fracking and the SNP are consulting over the current moratorium in Scotland.

Labour views emerging technologies such as carbon capture and storage as the way to help to smooth the transition to cleaner fuels and to protect existing jobs as part of the future energy mix. However, the manifesto is silent on the role of gas plants in delivering flexible generation. The current capacity market has not provided an incentive to build new plants; instead it has delivered the dirtiest possible coal and diesel generation.

The commitments to renewable energy projects, including tidal lagoons, are viewed as part of Labour’s industrial strategy, to create manufacturing and energy jobs, as well as contributing to climate- change commitments. With backing from a Labour government, these sectors can secure crucial shares of global export markets.

The Liberal-Democrats would also reverse Tory cuts to support for wind farms and solar PV. They also support energy efficiency measures. However, their support for community energy and new entrants into energy retail are firmly wedded to market solutions.

Under a Labour government nuclear will continue to be part of the UK energy supply, which puts them at odds with the SNP. Labour will also seek to retain access to Euratom, to allow continued trade of fissile material, with access and collaboration over research. As part of the Brexit negotiations, Labour will prioritise maintaining access to the internal energy market. This is also important to the SNP’s independence plans, which rely on access to energy systems outwith Scotland.

The SNP energy policy is currently the subject of a consultation and I have set out the UNISON response to that consultation here. In the event of a hung parliament, outwith the Tories, most parties could support the ambition in the paper and it is fair to say that Scotland has led the way on cleaner energy. Its weakness is the shortage of specific actions and milestones, a criticism shared by the renewables industry.

Most party manifestos express their support for renewable energy and energy efficiency. The radical shift in this election is the commitment to new ownership models in the Labour manifesto. The election of Labour government this week would mean big changes for the sector.


For a full comparison of the party manifestos on energy and climate change, see the Carbon Brief's helpful chart.


Cross posted on Utilities Scotland.